Buying and Selling Companies

Company valuation

Complementary Services

ZIMMA develops financial models to obtain a market valuation of a company through different methodologies such as discounted cash flows, market trading multiples and comparable transactions to reflect the value of the Company’s operations, taking into account the industry risks it belongs to. ZIMMA presents the conclusions and recommendations stemmed from these analyses. ZIMMA provides this service for companies with annual sales above US$10 million.

There are three basic methods to value an ongoing business:

Trading Multiples:
Trading Multiples measure the market value of a Company by analyzing specific metrics or calculations in their financial statements. The metrics more commonly used and widely known are:

• Price/Earnings ratio (P/E) – it’s one of the most commonly used financial ratio. It can be very volatile because of market movements and can be inadequate in countries with high inflation because the ratio takes into account non-recurrent items from the financial statements.
• Enterprise Value / EBITDA (EV / EBITDA) – this ratio is one of the most advisable and highly popular since it’s less volatile than other financial ratios. The reason for this is that it eliminates distorting factors that could vary wildly from year to year such as taxes and changes in foreign exchange rates. This measure is also very stable across industries since it can evaluate companies with different capital structures under the same base.

Transaction Multiples:
This method relies on multiples paid for companies in similar transactions in the same industry. The multiples used to value a Company under this methodology are Enterprise Value / Sales, Enterprise Value / EBITDA y Price / Earnings.

Discounted Cash Flow: When determining the value of a company, assuming that credible financial projections exist, the DCF methodology typically is the most conceptually sound approach as it considers prospective operating results of the company on an annual basis, and the required rate of return given the risks embedded in those cash flows.